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Sec 23, Payment & Settlement Systems Act 2007: Settlement and netting

The Payment and Settlement Systems Act 2007,

Chapter V (Rights and Duties of a System Provider),

Section 23 (Settlement and netting) :‒

❝(1) The payment obligations and settlement instructions among the system participants shall be determined in accordance with the gross or netting procedure, as the case may be, approved by the Reserve Bank while issuing authorisation to a payment system under section 7, or, such gross or netting procedure as may be approved by it under any other provisions of this Act.

(2) Where the rules providing for the operation of a payment system indicates a procedure for the distribution of losses between the system participants and the payment system, such procedure shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force.

(3) A settlement effected under such procedure shall be final and irrevocable.

(4) Where a system participant is declared by a court of competent jurisdiction as insolvent or is dissolved or wound up, then notwithstanding anything contained in the Companies Act, 1956 (1 of 1956) or the Banking Regulation Act, 1949 (10 of 1949) or any other law for the time being in force, the order of adjudication or dissolution or winding up, as the case may be, shall not affect any settlement that has become final and irrevocable and the right of the system provider to appropriate any collaterals contributed by the system participant or bye-laws of such system provider.

(5) Where an order referred to in sub-section (4) is made with respect to a central counter party, then, notwithstanding such order or anything contained in the Banking Regulation Act, 1949 (10 of 1949) or the Companies Act,1956 (1 of 1956) or the Companies Act, 2013 (18 of 2015) or any other law for the time being in force, the payment obligations and settlement instructions between the central counter party and the system participants including those arising from transactions admitted for settlement at a future date, shall be determined forthwith by such central counter party in accordance with the gross or netting procedure, as the case may be, approved by the Reserve Bank, while issuing authorisation or under any other provisions of this Act, and such determination shall be final and irrevocable.

(6) Notwithstanding anything contained in the Banking Regulation Act, 1949 (10 of 1949) or the Companies Act, 1956 (1 0f 1956) or the Companies Act, 2013 (18 of 2013) or any other law for the time being in force, the liquidator or receiver or assignee (by whatever name called) of the central counter party, whether appointed as provisional or otherwise, shall—
(a) not re-open any determination that has become final and irrevocable;
(b) after appropriating in accordance with the rules, regulations or bye-laws of the central counter party, the collaterals provided by the system participants towards their settlement or other obligations, return the collaterals held in excess to the system participants concerned.

Explanation 1.—For the removal of doubts, it is hereby declared that the settlement, whether gross or net, referred to in this section is final and irrevocable as soon as the money, securities, foreign exchange or derivatives or other transactions payable as a result of such settlement is determined, whether or not such money, securities or foreign exchange or derivatives or other transactions is actually paid.

Explanation 2.—For the purposes of this section, the expression "central counter party" means a system provider who by way of novation interposes between system participants in the transactions admitted for settlement, thereby becoming the buyer to every seller and the seller to every buyer, for the purpose of effecting settlement of their transactions.❞






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Notes:

Section 23 of the Payment and Settlement Systems Act 2007 was modified by the Payment and Settlement Systems (Amendment) Act, 2015, as follows:

(1) In sub-section (1), after the words “to a payment system” occurring at the end, the words and figure “under section 7, or, such gross or netting procedure as may be approved by it under any other provisions of this Act” were inserted; [effective date to be notified]

(2) Sub-sections (5) and (6) were newly inserted; [effective date to be notified]

(3) Existing Explanation was numbered as Explanation 1. [effective date to be notified]

(4) Explanation 2 was newly inserted. [effective date to be notified].

(5) Sub-section (4) shall stand substituted as follows:   [effective date to be notified]

  "(4) Where, by an order of a court, Tribunal or authority––

(a) a system participant is declared as insolvent or is dissolved or wound up; or
(b) a liquidator or receiver or assignee (by whatever name called), whether provisional or otherwise, is appointed in a proceeding relating to insolvency or dissolution or winding up of a system participant,

then, notwithstanding anything contained in the Banking Regulation Act,1949 (10 of 1949) or the Companies Act,1956 (1 of 1956) or the Companies Act, 2013 (18 of 2013) or any other law for the time being in force, such order shall not affect any settlement that has become final and irrevocable prior to such order or immediately thereafter, and the right of the system provider to appropriate any collaterals contributed by the system participants towards its settlement or other obligations in accordance with the rules, regulations or bye-laws relating to such system provider.".

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